UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark
One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                      to
 Commission File Number 1-7584
 TRANSCONTINENTAL GAS PIPE LINE CORPORATION
 (Exact name of registrant as specified in its charter)
 Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    74-1079400
(I.R.S. Employer
Identification No.)
 2800 Post Oak BoulevardP. O. Box 1396Houston, Texas
    
    77251(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code (713) 215-2000
 No Change
(Former name, former address and former fiscal year, if changed since last report)
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and
smaller reporting company in Rule 12b-2 of the Exchange
Act. (Check one):
 Large accelerated filer
o
    
    Accelerated filer o
    
    Non-accelerated filer  
þ
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
 The number of shares of Common Stock, par value $1.00 per share, outstanding as of October 31,
2008 was 100.
 REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H (1)(a) AND (b) OF FORM 10-Q AND
IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT.




---



##### 



PagePART I. FINANCIAL INFORMATION:Item 1. Financial Statements -Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2008 and 2007
    
    
    5Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007
    
    
    6Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007
    
    
    8Notes to Condensed Consolidated Financial Statements
    
    
    10Item 2. Managements Narrative Analysis of the Results of Operations
    
    
    20Item 4. Controls and Procedures
    
    
    24PART II. OTHER INFORMATION
    
    
    25Item 1. Legal Proceedings.
    
    
    25Item 1A. Risk Factors.
    
    
    25Item 6. Exhibits
    
    
    27
    
    
    Amounts and nature of future capital expenditures;
 2




---



##### 




    
    Expansion and growth of our business and operations;
    
    Financial condition and liquidity;
    
    Business strategy;
    
    Cash flow from operations or results of operations;
    
    Rate case filing; and
    
    Natural gas prices and demand.
  
    
    Availability of supplies (including the uncertainties inherent in assessing and
estimating future natural gas reserves), market demand, volatility of prices, and
increased costs of capital;
    
    Inflation, interest rates and general economic conditions;
    
    The strength and financial resources of our competitors;
    
    Development of alternative energy sources;
    
    The impact of operational and development hazards;
    
    Costs of, changes in, or the results of laws, government regulations including
proposed climate change legislation, environmental liabilities, litigation, and rate
proceedings;
    
    Our costs and funding obligations for defined benefit pension
plans and other postretirement benefit plans;
    
    Increasing maintenance and construction costs;
    
    Changes in the current geopolitical situation;
    
    Our exposure to the credit risk of our customers;
    
    Risks related to strategy and financing, including restrictions stemming from our
debt agreements and future changes in our credit ratings and the
availability and cost of credit;
    
    Risk associated with future weather conditions;
    
    Acts of terrorism; and
    
    Additional risks described in our filings with the Securities
and Exchange Commission.
   3




---



##### 



4




---



##### 



PART 1  FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
  
 
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Operating Revenues:Natural gas sales
    
    $
    42,631
    
    
    $
    36,546
    
    
    $
    113,282
    
    
    $
    127,785Natural gas transportation
    
    
    219,697
    
    
    
    215,059
    
    
    
    675,679
    
    
    
    627,245Natural gas storage
    
    
    35,930
    
    
    
    36,036
    
    
    
    109,482
    
    
    
    104,402Other
    
    
    1,272
    
    
    
    1,047
    
    
    
    7,458
    
    
    
    17,546Total operating revenues
    
    
    299,530
    
    
    
    288,688
    
    
    
    905,901
    
    
    
    876,978Operating Costs and Expenses:Cost of natural gas sales
    
    
    42,630
    
    
    
    36,547
    
    
    
    113,354
    
    
    
    127,715Cost of natural gas transportation
    
    
    (138
    )
    
    
    3,005
    
    
    
    3,676
    
    
    
    8,446Operation and maintenance
    
    
    55,134
    
    
    
    55,698
    
    
    
    166,119
    
    
    
    167,094Administrative and general
    
    
    39,145
    
    
    
    36,647
    
    
    
    114,900
    
    
    
    114,339Depreciation and amortization
    
    
    58,301
    
    
    
    57,590
    
    
    
    171,584
    
    
    
    168,762Taxes  other than income taxes
    
    
    13,204
    
    
    
    11,424
    
    
    
    37,305
    
    
    
    40,002Other (income) expense, net
    
    
    (6,210
    )
    
    
    4,143
    
    
    
    (13,731
    )
    
    
    8,468Total operating costs and expenses
    
    
    202,066
    
    
    
    205,054
    
    
    
    593,207
    
    
    
    634,826Operating Income
    
    
    97,464
    
    
    
    83,634
    
    
    
    312,694
    
    
    
    242,152Other (Income) and Other Deductions:Interest expense
    
    
    23,811
    
    
    
    24,097
    
    
    
    72,633
    
    
    
    70,721Interest income  affiliates
    
    
    (5,417
    )
    
    
    (3,830
    )
    
    
    (17,548
    )
    
    
    (11,755
    )Allowance for equity and borrowed funds used
during construction (AFUDC)
    
    
    (1,678
    )
    
    
    (5,463
    )
    
    
    (4,546
    )
    
    
    (10,176
    )Equity in earnings of unconsolidated affiliates
    
    
    (1,533
    )
    
    
    (1,717
    )
    
    
    (4,492
    )
    
    
    (5,114
    )Miscellaneous other income, net
    
    
    (1,643
    )
    
    
    (2,933
    )
    
    
    (5,183
    )
    
    
    (7,453
    )Total other (income) and other deductions
    
    
    13,540
    
    
    
    10,154
    
    
    
    40,864
    
    
    
    36,223Income before Income Taxes
    
    
    83,924
    
    
    
    73,480
    
    
    
    271,830
    
    
    
    205,929Provision for Income Taxes
    
    
    31,523
    
    
    
    27,927
    
    
    
    102,963
    
    
    
    78,632Net Income
    
    $
    52,401
    
    
    $
    45,553
    
    
    $
    168,867
    
    
    $
    127,297
  5




---



##### 



September 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent Assets:Cash
    
    $
    136
    
    
    $
    119Receivables:Affiliates
    
    
    2,266
    
    
    
    6,307Advances to affiliates
    
    
    191,460
    
    
    
    223,657Others, less allowance of $426 in 2008 ($462 in 2007)
    
    
    152,462
    
    
    
    115,003Transportation and exchange gas receivables
    
    
    8,919
    
    
    
    10,724Inventories
    
    
    60,256
    
    
    
    55,120Deferred income taxes
    
    
    
    
    
    
    38,588Other
    
    
    75,102
    
    
    
    33,619Total current assets
    
    
    490,601
    
    
    
    483,137Investments, at cost plus equity in undistributed earnings
    
    
    45,056
    
    
    
    44,730Property, Plant and Equipment:Natural gas transmission plant
    
    
    6,951,961
    
    
    
    6,840,377Less-Accumulated depreciation and amortization
    
    
    2,253,422
    
    
    
    2,113,561Total property, plant and equipment, net
    
    
    4,698,539
    
    
    
    4,726,816Other Assets
    
    
    280,861
    
    
    
    256,169Total assets
    
    $
    5,515,057
    
    
    $
    5,510,852
  6




---



##### 



September 30,
    
    
    December 31,2008
    
    
    2007LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Payables:Affiliates
    
    $
    17,501
    
    
    $
    15,530Other
    
    
    119,994
    
    
    
    86,273Transportation and exchange gas payables
    
    
    4,694
    
    
    
    7,245Accrued liabilities
    
    
    122,229
    
    
    
    204,305Reserve for rate refunds
    
    
    10,485
    
    
    
    98,035Deferred income taxes
    
    
    4,898
    
    
    
    Current maturities of long-term debt
    
    
    
    
    
    
    75,000Total current liabilities
    
    
    279,801
    
    
    
    486,388Long-Term Debt
    
    
    1,277,420
    
    
    
    1,127,370Other Long-Term Liabilities:Deferred income taxes
    
    
    1,068,436
    
    
    
    1,027,441Other
    
    
    270,072
    
    
    
    255,153Total other long-term liabilities
    
    
    1,338,508
    
    
    
    1,282,594Contingent liabilities and commitments (Note 2)Common Stockholders Equity:Common stock $1.00 par value:100 shares authorized, issued and outstanding
    
    
    
    
    
    
    Premium on capital stock and other paid-in capital
    
    
    1,652,430
    
    
    
    1,652,430Retained earnings
    
    
    981,302
    
    
    
    977,434Accumulated other comprehensive loss
    
    
    (14,404
    )
    
    
    (15,364
    )Total common stockholders equity
    
    
    2,619,328
    
    
    
    2,614,500Total liabilities and stockholders equity
    
    $
    5,515,057
    
    
    $
    5,510,852
  7




---



##### 



Nine Months EndedSeptember 30,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    168,867
    
    
    $
    127,297Adjustments to reconcile net income to net cash provided
by (used in) operating activities:Depreciation and amortization
    
    
    172,596
    
    
    
    169,920Deferred income taxes
    
    
    83,887
    
    
    
    18,369(Gain)/loss on sale of property, plant and equipment
    
    
    (10,542
    )
    
    
    12Allowance for equity funds used during construction (Equity AFUDC)
    
    
    (3,191
    )
    
    
    (7,420
    )Changes in operating assets and liabilities:Receivables  affiliates
    
    
    4,041
    
    
    
    2,487 others
    
    
    (37,459
    )
    
    
    (15,663
    )Transportation and exchange gas receivables
    
    
    1,805
    
    
    
    (6,338
    )Inventories
    
    
    (5,136
    )
    
    
    (5,310
    )Payables  affiliates
    
    
    (246
    )
    
    
    (4,003
    ) others
    
    
    (130,785
    )
    
    
    (4,660
    )Transportation and exchange gas payables
    
    
    (2,551
    )
    
    
    1,745Accrued liabilities
    
    
    (77,038
    )
    
    
    (8,369
    )Reserve for rate refunds
    
    
    57,025
    
    
    
    67,262Other, net
    
    
    (56,011
    )
    
    
    24,207Net cash provided by operating activities
    
    
    165,262
    
    
    
    359,536Cash flows from financing activities:Additions to long-term debt
    
    
    424,332
    
    
    
    Retirement of long-term debt
    
    
    (350,000
    )
    
    
    Debt issue costs
    
    
    (2,009
    )
    
    
    (10
    )Common stock dividends paid
    
    
    (165,000
    )
    
    
    (80,000
    )Change in cash overdrafts
    
    
    28,080
    
    
    
    (894
    )Net cash used in financing activities
    
    
    (64,597
    )
    
    
    (80,904
    )
  8




---



##### 



Nine Months EndedSeptember 30,2008
    
    
    2007Cash flows from investing activities:Property, plant and equipment:Additions, net of equity AFUDC
    
    $
    (125,698
    )
    
    $
    (327,884
    )Changes in accounts payable
    
    
    (5,932
    )
    
    
    15,058Changes in accrued liabilities
    
    
    (5,051
    )
    
    
    13,763Advances to affiliates, net
    
    
    32,197
    
    
    
    37,619Advances to others, net
    
    
    152
    
    
    
    651Purchase of ARO trust investments
    
    
    (23,966
    )
    
    
    Proceeds from sale of ARO trust investments
    
    
    11,765
    
    
    
    Other, net
    
    
    15,885
    
    
    
    (18,037
    )Net cash used in investing activities
    
    
    (100,648
    )
    
    
    (278,830
    )Net increase (decrease) in cash
    
    
    17
    
    
    
    (198
    )Cash at beginning of period
    
    
    119
    
    
    
    315Cash at end of period
    
    $
    136
    
    
    $
    117
  9




---



##### 



TRANSCONTINENTAL GAS PIPE LINE CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS   1. BASIS OF PRESENTATION
 General
        10




---



##### 



Comprehensive Income
  Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    52,401
    
    
    $
    45,553
    
    
    $
    168,867
    
    
    $
    127,297Equity interest in unrealized gain/(loss) on interest rate
hedge, net of tax
    
    
    (168
    )
    
    
    (132
    )
    
    
    43
    
    
    
    (18
    )Pension benefits, net of taxAmortization of prior service credit
    
    
    (122
    )
    
    
    (256
    )
    
    
    (366
    )
    
    
    (767
    )Amortization of net actuarial loss
    
    
    428
    
    
    
    579
    
    
    
    1,283
    
    
    
    1,736Total comprehensive income
    
    $
    52,539
    
    
    $
    45,744
    
    
    $
    169,827
    
    
    $
    128,248
 Recent Accounting Standards
  11




---



##### 




 Sale of South Texas Assets
  2. CONTINGENT LIABILITIES AND COMMITMENTS
 Rate Matters
   12




---



##### 



Legal Proceedings
  Environmental Matters
   13




---



##### 



14




---



##### 



Safety Matters
 Pipeline Integrity Regulations
 Appomattox, Virginia Pipeline Rupture
 Other Matters
  Summary
 
 Other Commitments
 Commitments for construction and gas purchases
 Guarantees
  15




---



##### 



3. DEBT AND FINANCING ARRANGEMENTS
 Revolving Credit and Letter of Credit Facility
   Issuance and Retirement of Long-Term Debt
   16




---



##### 



4. FAIR VALUE MEASUREMENTS
 Adoption of SFAS No. 157
    
    
    Level 1  Quoted prices in active markets for identical assets or liabilities that we
have the ability to access. Active markets are those in which transactions for the asset
or liability occur in sufficient frequency and volume to provide pricing information on an
ongoing basis. Our Level 1 primarily consists of financial instruments in our ARO Trust.
    
    Level 2  Inputs are other than quoted prices in active markets included in Level 1,
that are either directly or indirectly observable. These inputs are either directly
observable in the marketplace or indirectly observable through corroboration with market
data for substantially the full contractual term of the asset or liability being measured.
We do not have any Level 2 measurements.
    
    Level 3  Includes inputs that are not observable for which there is little, if any,
market activity for the asset or liability being measured. These inputs reflect
managements best estimate of the assumptions market participants would use in determining
fair value. We do not have any Level 3 measurements.
 17




---



##### 



Fair Value Measurements at September 30, 2008 Using:
 Quoted Pricesin ActiveMarkets for
    
    
    SignificantIdentical
    
    
    Other
    
    
    SignificantAssets or
    
    
    Observable
    
    
    UnobservableLiabilities
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Total(Millions)Assets:Other assets
    
    $
    11.9
    
    
    $
    
    
    
    $
    
    
    
    $
    11.9Total assets
    
    $
    11.9
    
    
    $
    
    
    
    $
    
    
    
    $
    11.9
  5. TRANSACTIONS WITH AFFILIATES
       18




---



##### 



19




---



##### 



ITEM 2. Managements Narrative Analysis of Results of Operations.
 General
  RECENT MARKET EVENTS
  
    
    We have no significant debt maturities until 2011.
    
    As of September 30, 2008, we have approximately $191.5 million of available cash from
return of advances made to affiliates and available capacity under our Credit Facility.
(See Note 3 of Notes to the Condensed Consolidated Financial Statements.)
    
    A significant portion of our transportation and storage services are provided pursuant
to long-term firm contracts that obligate our customers to pay us monthly capacity
reservation fees regardless of the amount of pipeline or storage capacity actually utilized
by a customer.
 RESULTS OF OPERATIONS
 Operating Income and Net Income
  Pipeline Rupture
  20




---



##### 



Transportation Revenues
    Nine monthsEnded September 30,Transco System Deliveries (TBtu)
    
    2008
    
    2007Market-area deliveries:Long-haul transportation
    
    
    577.6
    
    
    
    621.7Market-area transportation
    
    
    699.6
    
    
    
    662.5Total market-area deliveries
    
    
    1,277.2
    
    
    
    1,284.2Production-area transportation
    
    
    150.8
    
    
    
    146.0Total system deliveries
    
    
    1,428.0
    
    
    
    1,430.2Average Daily Transportation Volumes (TBtu)
    
    
    5.2
    
    
    
    5.2Average Daily Firm Reserved Capacity (TBtu)
    
    
    6.8
    
    
    
    6.5
 Sales Revenues
  21




---



##### 



Storage Revenues
  Other Revenues
  Operating Costs and Expenses
  22




---



##### 




    
    A decrease in cost of natural gas transportation of $4.8 million due to lower fuel expense of $10.4 million in
2008 resulting from favorable pricing differentials between cost
recoveries at spot prices and expenses recognized
at weighted average prices, partly offset by $5.8 million higher electric power costs.
    
    A $4 million charge associated with a third quarter 2008 pipeline rupture.
    
    Lower other (income) expense, net of $22.2 million, primarily resulting from:
 o
    
    A $10.4 million gain related to the sale of our South Texas assets ando

    
    A $9.5 million gain recognized in 2008 related to the sale of Eminence top gas
sold in 2007. In 2007, the gain was deferred pending a FERC Order on our March 2007
fuel tracker filing, which was issued in May 2008.o

    
    A net decrease in expense of $3.6 million associated with our asset retirement
obligations (ARO) due to the new rates in Docket No. RP06-569, effective March 1, 2007
(See Note 2 of Notes to Condensed Consolidated Financial Statements). Any differences
between the recovery of ARO costs in rates and the depreciation, accretion, and
amortization of the regulatory asset from March 1, 2007 forward are being deferred as a
regulatory asset for collection/refund in the next rate case.
 Other (Income) and Other Deductions
  
    
    Lower allowance for equity and borrowed funds used during construction (AFUDC) of $5.6
million due to lower construction spending in 2008 primarily due to the completion of our
Leidy to Long Island expansion placed in service in December 2007.
    
    Lower miscellaneous other income, net of $2.3 million primarily due to lower equity
AFUDC gross-up in the nine months ended September 30, 2008 as compared to the same period
in 2007.
    
    Increased interest expense of $1.9 million primarily due to higher interest on reserve
for rate refunds for the nine months ended September 30, 2008 as compared to the same
period in 2007 due to the effect of placing into effect, subject to refund, the rates in
Docket No. RP06-569, on March 1, 2007. On March 7, 2008, the FERC issued an order
approving without modifications a Stipulation and Agreement (Agreement) resolving all
substantive issues in the rate case. Pursuant to its terms, the Agreement became effective
on June 1, 2008, and refunds of approximately $144 million were issued on July 17, 2008.
    
    Partly offsetting these was an increase in interest income  affiliates of $5.8 million
due to overall higher average advances to affiliates in 2008 as compared to the same
period in 2007.
 Capital Expenditures
  23




---



##### 



Sentinel Expansion Project
 Pascagoula Expansion Project
 Mobile Bay South Expansion Project
 85 North Expansion Project
 Asset Retirement Obligation Funding Requirement
  
 ITEM 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  24




---



##### 



Third Quarter 2008 Changes in Internal Control over Financial Reporting
  
  
   
   Recent events in the global credit markets have created a shortage in the availability of
credit.
  25




---



##### 



We are exposed to the credit risk of our customers.
  Our debt agreements impose restrictions on us that may adversely affect our ability to
operate our business.
    26




---



##### 



Our costs and funding obligations for defined benefit pension plans and other
postretirement benefit plans, in which we participate, are affected by factors beyond our
control.
  
    -
    
    
    1
    
    
    Certification of Principal Executive Officer pursuant to
Rules 13a-14(a) and 15d-14(a) promulgated under the
Securities Exchange Act of 1934, as amended, and Item
601(b)(31) of Regulation S-K, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.-
    
    
    2
    
    
    Certification of Principal Financial Officer pursuant to
Rules 13a-14(a) and 15d-14(a) promulgated under the
Securities Exchange Act of 1934, as amended, and Item
601(b)(31) of Regulation S-K, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
  -
    
    
    
    Certification of Principal Executive Officer and
Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 27




---



##### 



TRANSCONTINENTAL GAS PIPE LINE
CORPORATION (Registrant)Dated:  November 6, 2008
    By  /s/ Jeffrey P. HeinrichsJeffrey P. HeinrichsController
(Principal Accounting Officer) 28